Is Job Market Recovery Still on Track?

By Sarah Morgan

More people filed for unemployment insurance in the week ending Christmas Eve than in the previous week, but economists say investors shouldn’t be too worried about the health of the job market in 2012.

After falling for a few weeks, initial unemployment claims ticked back up in the week ending Dec. 24, to 381,000, the Labor Department reported this morning. The four-week moving average, however, fell again, to 375,000. “The number was certainly a bit worse than what we and markets had expected,” says Beth Ann Bovino, deputy chief economist for Standard & Poor’s. “But it is one number, so it doesn’t make a trend.”

Investors can also take comfort in the fact that the number of claims has been below 400,000 in seven of the last eight weeks, Bovino says. Historically, when jobless claims are above 400,000, the economy is heading into or in a recession, and numbers under 400,000 generally indicate recovery, although claims would have to fall below about 370,000 to indicate a strong recovery, she says.

Investors should watch this data series through January to see if December’s numbers were distorted by holiday hiring (the data is seasonally adjusted, but those adjustments aren’t perfect), Bovino says. If the number of claims holds below 400,000 in January, that’ll be a very positive sign, she says.

Overall, the longer-term trend for labor market data is still positive, says Robert Brusca, the chief economist for Fact & Opinion Economics. Brusca says he believes the current recovery will follow the pattern of recoveries in 1990 and 2001, when economic growth started to recover long before the job market got into gear. But when the job market does finally start to improve, that in turn spurs more economic growth. “I think this rebound has been slow coming, but it’s going to be strong,” Brusca says. He expects fairly strong GDP growth of about 3% next year.

For investors, recent labor market data is definitely a bullish sign, says Jamie Cox, a managing partner at Harris Financial Group. “Investors would do well to focus on real economic trends right now and invest accordingly,” he says.

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